Overall, the sector has progressed significantly over the last two decades. The S&P 500’s (INDEXSP:.INX) technology index reached a high of 988.49 points in March 2000, having risen by nearly 500 points in the five years preceding the dot-com bubble. Similarly, the NASDAQ reached an all-time high of 5,000 points. With so much growth in the technology sector over the last two decades, technological advancements disrupt and shape our cultural fabric at previously unheard-of rates. Due to technological advances, finance, real estate, transportation, and healthcare are all transforming.
Countless tech-related industries have evolved over the last decade or so. Consider the music industry, which has transitioned from compact discs to streaming.
Spotify (NYSE: SPOT), which made its NYSE debut in 2018, is the most notable streaming company to emerge from this trend. As of Q3 2021, the platform had over 172 million subscribers worldwide, up from 144 million in Q3 2020. Its subscriber base had nearly tripled since the third quarter of 2017 when it was only 62 million.
Apple’s (NASDAQ: AAPL) Apple TV Plus and Disney’s (NYSE: DIS) Disney Plus have recently joined the ranks, with both companies launching video-streaming services with original content in late 2019. Apple has not disclosed the number of users it has acquired since its inception, but it is estimated to have 40 million subscribers as of September 2021.
Messaging apps, which connect people worldwide, are another tech segment that has grown in the last decade. WhatsApp, the world’s most popular messaging app, has over 2 billion users.
Industry outlook for technology investing
Its reach is almost unrivaled when it comes to the global technology market. The technology economy is the third largest, trailing only the United States and China. The combined market capitalization of the top ten technology firms, which have become gatekeepers in commerce, finance, entertainment, and communications, is now more than US$10 trillion. The healthcare industry is expected to grow the most, with some analysts predicting a compound annual growth rate of 25.9 percent through 2028. IoT devices are used in the healthcare field for data collection and analysis in medical research, such as tracking electronic health records, monitoring patients for improved outcomes, and tracking medical equipment location.
Despite exciting and significant advances in natural language processing and prediction, AI adoption remains slow. Nonetheless, the evolution of AI is expected to influence and shape society, with analysts estimating that AI revenues will reach US$126 billion in 2025, up from US$1.37 billion in 2016.
Investing in Tech Stocks
To name a few, the technology sector includes gadget makers, software developers, wireless providers, streaming services, semiconductor companies, and cloud computing providers. Any company that sells a product or service heavily reliant on technology is most likely in the tech sector. Amazon.com (NASDAQ: AMZN) is the world’s largest online retailer and the world’s largest cloud computing infrastructure provider. Jeff Bezos, the company’s founder, stepped down in July, ushering in a new era for the dominant technology company.
Microsoft (NASDAQ: MSFT) is a well-known software company known for its Windows PC operating system and Office productivity software. Microsoft is also the second-largest cloud infrastructure provider, trailing only Amazon.
Apple (NASDAQ: AAPL) is the maker of the iPhone, iPad, and Mac computers. Intense customer loyalty ensures a steady stream of repeat customers, and Apple’s ecosystem is becoming increasingly enticing.
Netflix (NASDAQ: NFLX) is the industry leader in video streaming, spending billions of dollars on content each year to keep its ever-growing subscriber base hooked.
With over 2 billion daily active users across Facebook, Instagram, Messenger, and WhatsApp, Facebook (NASDAQ: FB) is the largest social media company. Virtual reality is the company’s vision for the future.
Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is the parent company of Google and the popular Android smartphone operating system.
The impact of COVID on tech stocks
The pandemic has been beneficial to the technology industry for the most part. Amazon has thrived as consumers have shifted heavily toward e-commerce, even as competitors such as Walmart (NYSE: WMT) and Target (NYSE: TGT) have increased their e-commerce efforts. Amazon increased total sales by 27 percent to $113.5 billion in the second quarter of 2021, an incredible feat for such a large company. Although the delta variant surge may drive consumers away from stores, growth is beginning to slow.
Microsoft has done well, helped by increased demand for collaboration software, devices, gaming, and cloud computing services as people spend more time at home. PC sales remained solid at the beginning of 2021, assisting the company on multiple fronts.
While it was unclear how sales of Apple’s pricey gadgets would fare early in the pandemic, consumers have been snapping up Apple products. In the most recent quarter, sales of everything the company produces increased significantly, with the core iPhone business growing by 50%.
The high demand for devices has also aided Intel. As people work from home, laptop sales have increased, but a global semiconductor shortage and supply chain issues complicate matters. Intel plans to invest heavily in manufacturing to become a significant player in the foundry industry.
Advanced Micro Devices (NASDAQ: AMD), Intel’s main competitor, has also been doing well. AMD’s latest Ryzen 5000 PC chips outperform comparable Intel chips in nearly every metric, implying that Intel will continue to lose market share.
While Cisco suffered during the pandemic as customers postponed spending on upgrades, the company has since recovered. Cisco’s revenue increased by 8% in the most recent quarter, and the company’s guidance points to a strong year ahead. With $15 billion in software revenue last year, Cisco has grown into a primary software provider. WebEx, Cisco’s video conferencing solution, increased due to the pandemic.
How to analyze tech stocks
The price-to-earnings ratio is helpful for mature technology companies that generate profits. Divide the stock price by the earnings per share to get a multiple that indicates how highly the market values the company’s current earnings. The higher the multiple, the more the market values future earnings growth.
Because many technology companies are not profitable, the price-to-earnings ratio cannot use to evaluate them. For these younger companies, revenue growth is more important. If you’re going to invest in something new, make sure it has strong growth potential.
It’s also critical for unprofitable tech companies to shift their bottom line from losses to profits. As a company grows, it should become more efficient, particularly in the sales and marketing expenditures required to close deals. If it isn’t, or if spending increases as a percentage of revenue, something is wrong.
Finally, a promising technology stock trades at a reasonable valuation about its growth prospects. The tricky part is determining those growth prospects accurately. Paying a premium for the store may make sense if you expect earnings to skyrocket in the coming years. However, if you are incorrect about the growth prospects, your investment may fail.
One way to avoid making mistakes is to invest in an exchange-traded fund (ETF) that focuses on technology stocks. The ARK Innovation ETF (NYSEMKT: ARKK) is one option, though the fund’s bets on high-flying tech stocks may prove riskier in the long run than investing in the tech titans listed above.
Investing in technology stocks can be risky, but you can reduce your risk by only investing when you are confident that their growth prospects justify their valuations.
To sum up
Technology is advancing daily, and as the literacy rate rises, more talented and recent graduates are joining forces to create a massive industry. With so many wider and open paths in this industry, everyone wants to make hay while the sun shines. It is one of the most critical factors influencing investors’ and stakeholders’ willingness to invest in this rapidly expanding field.
There is no such thing as a risk-free business; if you want to grow and work alongside market titans, you must take steps to ensure that your company thrives in the modern era. As a result, you can quickly advance in this field by investing in technology and making the best use of your resources.
Technology can help you stay updated on current events and prepare your company in an emergency. If disaster strikes, technology can also help by allowing your employees to quickly share information (and customers). It will enable them to get back up and running as soon as possible, reducing the impact of a crisis.
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